You are on page 1of 7

Resource-based view (RBV)

RBV is an approach to achieving competitive advantage that emerged in 1980s and 1990s. The
supporters of this view argue that organizations should look inside the company to find the
sources of competitive advantage instead of looking at competitive environment for it.
The following model explains RBV and emphasizes the key points of it.

According to RBV proponents, it is much more feasible to exploit external opportunities using
existing resources in a new way rather than trying to acquire new skills for each different
opportunity. In RBV model, resources are given the major role in helping companies to achieve
higher organizational performance. There are two types of resources: tangible and intangible.
Tangible assets are physical things. Land, buildings, machinery, equipment and capital all
these assets are tangible. Physical resources can easily be bought in the market so they confer
little advantage to the companies in the long run because rivals can soon acquire the identical
assets.
Intangible assets are everything else that has no physical presence but can still be owned by the
company. Brand reputation, trademarks, intellectual property are all intangible assets. Unlike
physical resources, brand reputation is built over a long time and is something that other
companies cannot buy from the market. Intangible resources usually stay within a company and
are the main source of sustainable competitive advantage.

The two critical assumptions of RBV are that resources must also be heterogeneous and
immobile.
Heterogeneous. The first assumption is that skills, capabilities and other resources that
organizations possess differ from one company to another. If organizations would have the same
amount and mix of resources, they could not employ different strategies to outcompete each
other. What one company would do, the other could simply follow and no competitive advantage
could be achieved. Therefore, RBV assumes that companies achieve competitive advantage by
using their different bundles of resources.
Example:
The competition between Apple Inc. and Samsung Electronics is a good example of how two
companies that operate in the same industry and thus, are exposed to the same external forces,
can achieve different organizational performance due to the difference in resources. Apple
competes with Samsung in tablets and smartphones markets, where Apple sells its products at
much higher prices and, as a result, reaps higher profit margins. Why Samsung does not follow
the same strategy? Simply because Samsung does not have the same brand reputation or is
capable to design user-friendly products like Apple does. (heterogeneous resources)
Immobile. The second assumption of RBV is that resources are not mobile and do not move
from company to company, at least in short-run. Due to this immobility, companies cannot
replicate rivals resources and implement the same strategies. Intangible resources, such as brand
equity, processes, knowledge or intellectual property are usually immobile.
VRIO framework
Although, having heterogeneous and immobile resources is critical in achieving competitive
advantage, it is not enough alone if the firm wants to sustain it. Barney (1991) has identified
VRIN framework that examines if resources are valuable, rare, costly to imitate and nonsubstitutable. The resources and capabilities that answer yes to all the questions are the sustained
competitive advantages. The framework was later improved from VRIN to VRIO by adding the
following question: Is a company organized to exploit these resources?

Valuable
The first question of the framework asks if a resource adds value by enabling a firm to exploit
opportunities or defend against threats. If the answer is yes, then a resource is considered
valuable. Resources are also valuable if they help organizations to increase the perceived
customer value. This is done by increasing differentiation or/and decreasing the price of the
product. The resources that cannot meet this condition, lead to competitive disadvantage. It is
important to continually review the value of the resources because constantly changing internal
or external conditions can make them less valuable or useless at all.
Rare
Resources that can only be acquired by one or very few companies are considered rare. Rare and
valuable resources grant temporary competitive advantage. On the other hand, the situation when
more than few companies have the same resource or uses the capability in the similar way, leads
to competitive parity. This is because firms can use identical resources to implement the same
strategies and no organization can achieve superior performance.
Even though competitive parity is not the desired position, a firm should not neglect the
resources that are valuable but common. Losing valuable resources and capabilities would hurt
an organization because they are essential for staying in the market.

Costly to Imitate
A resource is costly to imitate if other organizations that doesnt have it cant imitate, buy or
substitute it at a reasonable price. Imitation can occur in two ways: by directly imitating
(duplicating) the resource or providing the comparable product/service (substituting).
A firm that has valuable, rare and costly to imitate resources can (but not necessarily will)
achieve sustained competitive advantage. Barney has identified three reasons why resources can
be hard to imitate:

Historical conditions. Resources that were developed due to historical events or over a
long period usually are costly to imitate.

Causal ambiguity. Companies cant identify the particular resources that are the cause of
competitive advantage.

Social Complexity. The resources and capabilities that are based on companys culture or
interpersonal relationships.

Organized to Capture Value


The resources itself do not confer any advantage for a company if its not organized to capture
the value from them. A firm must organize its management systems, processes, policies,
organizational structure and culture to be able to fully realize the potential of its valuable, rare
and costly to imitate resources and capabilities. Only then the companies can achieve sustained
competitive advantage.
How to use the tool?
There are two types of resources: tangible and intangible. Tangible assets are physical things like
land, buildings and machinery. Companies can easily buy them in the market so tangible assets
are rarely the source of competitive advantage. On the other hand, intangible assets, such as
brand reputation, trademarks, intellectual property, unique training system or unique way of
performing tasks, cant be acquired so easily and offer the benefits of sustained competitive
advantage. Therefore, to find valuable, rare and costly to imitate resources, you should first look
at companys intangible assets.
Finding valuable resources:
An easy way to identify such resources is to look at the value chain and SWOT analyses. Value
chain analysis identifies the most valuable activities, which are the source of cost or
differentiation advantage. By looking into the analysis, you can easily find the valuable resources
or capabilities. In addition, SWOT analysis recognizes the strengths of the company that are used
to exploit opportunities or defend against threats (which is exactly what a valuable resource
does). If you still struggle finding valuable resources, you can identify them by asking the
following questions:

Which activities lower the cost of production without decreasing perceived customer
value?

Which activities increase product or service differentiation and perceived customer


value?

Have your company won an award or been recognized as the best in something? (most
innovative, best employer, highest customer retention or best exporter)

Do you have an access to scarce raw materials or hard to get in distribution channels?

Do you have special relationship with your suppliers? Such as tightly integrated order
and distribution system powered by unique software?

Do you have employees with unique skills and capabilities?

Do you have brand reputation for quality, innovation, customer service?

Do you perform any tasks better than your competitors do? (Benchmarking is useful
here)
Does your company hold any other strengths compared to rivals?

Finding rare resources:

How many other companies own a resource or can perform capability in the same way in
your industry?

Can a resource be easily bought in the market by rivals?

Can competitors obtain the resource or capability in the near future?

Finding costly to imitate resources:

Do other companies can easily duplicate a resource?

Can competitors easily develop a substitute resource?

Do patents protect it?

Is a resource or capability socially complex?

Is it hard to identify the particular processes, tasks, or other factors that form the
resource?

Step 2. Find out if your company is organized to exploit these resources


Following questions might be helpful:

Does your company have effective strategic management process in organization?

Are there effective motivation and reward systems in place?

Does your companys culture reward innovative ideas?

Is an organizational structure designed to use a resource?

Are there excellent management and control systems?

Step 3. Protect the resources


When you identified a resource or capability that has all 4 VRIO attributes, you should protect it
using all possible means. After all, it is the source of your sustained competitive advantage. The
first thing you should do is to make the top management aware of such resource and suggest how
it can be used to lower the costs or to differentiate the products and services. Then you should
think of ideas how to make it more costly to imitate. If other companies wont be able to imitate
a resource at reasonable prices, it will stay rare for much longer.

Step 4. Constantly review VRIO resources and capabilities


The value of the resources changes over time and they must be reviewed constantly to find out if
they are as valuable as they once were. Competitors are also keen to achieve the same
competitive advantages so theyll be keen to replicate the resources, which means that they will
no longer be rare. Often, new VRIO resources or capabilities are developed inside an
organization and by identifying them you can protect you sources of competitive advantage more
easily.

Googles capability evaluated using VRIO framework


Excellent employee management
Valuable?

Rare?

Costly to Imitate?

Is a company organized to exploit it?

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Googles ability to manage their people effectively is a source of both differentiation and cost
advantages. Unlike other companies, which rely on trust and relationship in people management,
Google uses data about its employees to manage them. This capability allows making correct
(data based) decisions about which people to hire and the best way to use their skills. As a result,
Google is able to hire innovative employees that are also very productive ($1 million in revenue
per employee). Besides being valuable, it is also a rare capability because no other company uses
data based employee management so extensively. Is it costly to imitate? It is costly to imitate, at
least, in the near future. First, companies should build the highly sophisticated software, which is
both costly and hard to do. Second, HR managers should be newly trained to make data based

decisions and forget their old management methods. Is Google organized to capture value from
this capability? Certainly, it has trained HR managers that know how to use the data and manage
people accordingly. It also has the needed IT skills to collect and manage the data about its
employees.